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Would-be homebuyers remained flustered by elevated home prices and mortgage rates in June, but were slightly more optimistic about market conditions than they were in May, when buyer sentiment hit a low in Fannie Mae survey records dating to 2010.
That’s according to Fannie Mae’s monthly National Housing Survey, which also showed many Americans may be underestimating the odds that mortgage rates will continue to pull back from 2024 peaks.
Fannie Mae’s Home Purchase Sentiment Index (HPSI) distills six questions from the National Housing Survey into a single number. The HPSI, which hit an all-time low of 56.7 in October 2022, rose 3.2 points from May to June, to 72.7.
Source: Fannie Mae National Housing Survey, June 2024.
Four out of six HPSI components improved in June — buying conditions, selling conditions, job loss concerns and home price outlook — while two components worsened: the mortgage rate outlook and change in household income.
For purposes of calculating the HPSI, expectations that home prices will appreciate is considered a positive, since it indicates consumer confidence that homes aren’t overvalued and headed for a crash.
But with elevated home prices and mortgage rates already creating affordability challenges, further home price increases could end up denting sales.
Mark Palim
“If mortgage rates decline through the end of the year, as we currently forecast, we do think home sales activity will pick up, but progress on that front is likely to be slow due to the ongoing imbalance between supply and demand,” Fannie Mae Deputy Chief Economist Mark Palim said, in a statement. “A significant majority of consumers continue to tell us that it’s a ‘bad time’ to buy a home, and they’re also telling us that they expect both home prices and mortgage rates to move higher over the next 12 months.”
Source: Fannie Mae National Housing Survey, June 2024.
While just 19 percent of consumers polled by Fannie Mae in June thought it was a good time to buy, that’s up 5 percentage points from a survey low of 14 percent seen in May. With the percentage saying it was a bad time to buy decreasing to 81 percent, the net share of those who said it was a good time to buy increased by 9 percentage points from May to June.
Source: Fannie Mae National Housing Survey, June 2024.
With consumers convinced home prices and mortgage rates are likely to move higher, overall housing market sentiment is unlikely to improve much until “meaningful progress” is made on affordability, Palim said.
“Of course, the flip side to a difficult purchase market is an advantageous sales market, and respondents also maintained their position that it’s a generally good time to sell, pointing to high home prices as the primary reason,” Palim said.
With the percentage of consumers who said it was a good time to sell rising to 66 percent, and only 33 percent saying June was a bad time to sell, the net share who said it is a good time to sell ticked up 4 percentage points from May to June.
Source: Fannie Mae National Housing Survey, June 2024.
While many economists and investors expect mortgage rates to come down in the year ahead as the economy continues to cool, consumers remain skeptical.
Only 24 percent of homeowners and renters polled by Fannie Mae in June expect rates to come down in the next 12 months, and the percentage who expect rates to go up increased to 33 percent.
But the largest share of those polled are convinced mortgage rates are in limbo, with 42 percent expecting them to remain unchanged over the next 12 months.
After hitting a 2024 high of 7.27 percent on April 25, rates for 30-year fixed-rate conforming mortgages have been trending down, averaging 6.90 percent on July 5, according to rate lock data tracked by Optimal Blue.
In their most recent forecast, Fannie Mae economists said they expect rates on 30-year fixed-rate loans will drop to 6.7 percent during Q4 2024, and to 6.3 percent by the end of next year.
More listings and lower mortgage rates should boost 2025 home sales by 9.3 percent, to 5.3 million transactions, Fannie Mae forecasters said.
In a June 24 forecast, economists with the Mortgage Bankers Association said they expect rates on 30-year fixed-rate loans to drop to 6.6 percent during the fourth quarter of 2024 and to an average of 6.0 percent during Q4 2025.
Source: Fannie Mae National Housing Survey, June 2024.
Consumers are also pessimistic about the prospect for home prices to come down or even plateau, with 45 percent polled by Fannie Mae in June saying they expect home prices to go up in the next 12 months, and 36 percent saying they will stay the same. With only 17 percent expecting home prices to come down in the next 12 months, the net share of Americans expecting home prices will go up increased by three percentage points from May to June.
Source: Fannie Mae National Housing Survey, June 2024.
Although not factored into the HPSI, the National Home Survey also asks consumers whether they think the economy is on the right or the wrong track.
While 71 percent of those surveyed in June thought the economy was on the wrong track, that’s a slight improvement from May, when 74 percent said the same.
Just 28 percent of Americans said they thought the economy was on the right track in June, up from 25 percent in May.
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Email Matt Carter